Macro Economics

Richa 10 minutes Revision
Coaching of
Macroeconomics
Classes Easy Language/Point wise Explanation
By Ravi Mohanani/Sindhi Colony, Khandwa MP 450001

Microeconomics- Study of individual unit
Macroeconomics- Study of whole economy
Richa Coaching Classes/89639 84848

Ragnar Frisch an economist From Norway coined the
this term Microeconomics in 1933/
John Maynard Keynes is known as father of

Macroeconomics-
his book ‘ The General Theory of Employment, Interest
and Money ‘ was published in 1936
Scope of Macroeconomics
–
Money/Banking/Employment/Aggregate
Demand/Aggregate Supply/International
Trade/Govt Budget
Types of Goods
Consumption Goods : Goods which are used by the consumers
Capital Goods : All goods which are used in the production of other goods either as fixed assets
Final Goods : Those goods which are purchased either for final consumption by consumers
(consumers goods) or for investment by producers (capital goods).
Intermediate Goods : Those goods and services which are purchased as raw material for further
production or for resale in the same year
Stock: Stock is a quantity measurable at a
particular “point of time”--wealth, assets, money
Flow: Flow is a quantity that can be measured over

a specific “period of time---national income

National Income : National Income is the sum total of factor incomes earned by normal residents of a country
Methods
Value Added Method or Production Method/
Income Method/
Expenditure Method
Circular flow of income : Circular flow of income refers to the flow of activities of production,
income generation and expenditure involving different sectors of the economy
Real Flow : It shows the flow of goods and services among the various sectors of economy
Money Flow : It shows the flow of money among various sectors of economy
Leakages of Income : It is the amount of money
which is withdrawn from circular flow of income
Injections of Income : It is the amount of money

which is added to the circular flow of income
Double Counting :
Counting the value of the same product more than

once in calculation of National Income
Mixed Income :
income from self resources like –rent of

own building or own salary
Money :
Money may be defined as anything which is

generally acceptable as a medium of
exchange and also acts as common measures
of value, store of value and standard of
deferred payment

Barter System-
In which goods are exchanged for goods It has

many deficiencies as it lacks dual
coincidence/storage/value measurement
High Powered Money or Reserve Money :
It is the sum of
(i) Currency held by the public
(ii) Cash reserve of the banks
Central Bank: A Central Bank is an apex institution in
the banking structure of the country.
It Supervises, controls and regulates the activities of

Commercial Banks and acts as a Banker to them. RBI
(Reserve Bank of India) is the Central Bank of India
Fiat Money: Money that holds value only because the government declares it as legal tender
Fiat Money/ Legal Tender Fiduciary Money/

Non Legal Tender
Currency Notes
Cheques/Bills of Exchange
Bank Rate: It is the rate of interest at
which the Central Bank gives loan to the
commercial banks without any security to
cope with immediate cash crunch
Aggregate Demand : Aggregate Demand refers to
the total demand for all goods and services in
the economic system as a whole. This is
expressed in terms of total expenditure made
in the economy
Aggregate Supply : The concept of aggregate
supply is related to the total supply of
goods and services made available by all
the producers in the economy
Propensity to Consume : It expresses the
consumption levels at different levels of income
Propensity to Save : It is the ratio of saving to

income at different levels of income
Consumption Function : It denotes the
relation between consumption and
income.
Saving Function : It denotes the relation

between saving and income. It shows the
desire of savings at various levels of
income
Investment : Investment expenditure includes
expenditure for producer’s durable equipment,
new construction and the change in inventories.
Induced Investment: It depends upon income and profit in

the economy. Investment made with expectation of profit is
called induced investment
Autonomous Investment: Government investment
expenditure is done on considerations of social welfare
Full Employment : It refers to situation in
which all those who are able to work
and are willing to work get employment
at the existing wage rate
Involuntary Unemployment : It is a situation when
some people are not getting jobs even when they
are able to work and are willing to work at the
existing wage rate
Ex-Ante Saving : It is the planned or desired or intended saving during a particular period
Ex-Ante Investment : It is the planned or desired or intended investment during a particular period
Ex-Post Saving : It is realised saving. It is equal to Ex-Ante saving + Unplanned saving
Ex-Post Investment : It is realised investment. It is equal to Ex-Ante investment + unplanned investment

Deficient Demand : When AD falls short of AS at full employment, it is called deficient demand.
Deficient Demand = AD < AS (at full employment level).
Reasons for Deficient Demand : (i) Reduction in supply of currency,(ii) Increase in Bank Rate, (iii) Increase
in Taxes, (iv) Reduction in Public Expenditure, (v) Increase in Propensity to Save, (vi) Decline in Export
Demand.
Excess Demand : Excess demand refers to a situation when aggregate demand exceeds aggregate
supply corresponding to full employment. AD > AS (at full employment level)
Fiscal Policy : Government measures related to public expenditure, taxation and public debt are referred
as fiscal measures and the policy related to these measures is called Fiscal Policy
Budget : Budget is a financial statement showing the expected receipt and expenditure of Government
for the coming fiscal or financial year
Objectives of Government Budget : (i) Encouragement to economic development,

(ii) Balanced Regional development, (iii) Redistribution of Income and Property,
(iv) Economic stability, (v) Generation of employment, (vi) Management of public
enterprises
Tax : It is a compulsory contribution by an individual, household or a firm to the
government without receiving anything in return
Direct Tax : Direct Taxes are those taxes which are paid by the same person on whom they are levied.
When Government imposes a tax on a person and paid by the same person is called direct tax. Its
burden can not be shifted to others. For example : Income Tax, Property Tax
Indirect Tax : It is a tax on goods and services. It is to be initially paid by the producers / traders but
its final burden can be passed on to the final buyers by way of increase in price of the taxed
commodity. GST or VAT is an example of it
Types of Budget
(i) Balanced Budget : Total Expenditure = Total Revenue

(ii) Deficit Budget : Total Expenditure > Total Revenue
(iii)Surplus Budget : Total Anticipated Expenditure < Total
Anticipated Revenue
Planned Expenditure : It is incurred in accordance with planned development programmes of the
country
Non-Planned Expenditure : It refers to general expenditure incurred on essential general services of
routine nature. Disinvestment : It refers to withdrawal of existing investment, e.g., Government of
India is undertaking disinvestment by selling the shares of Maruti Suzuki
Development Expenditure : It is directed towards development programmes of the country, and which
directly contributes to the flow of goods and services in the economy.
Non-Development Expenditure : It is not directly related to development programmes of the country,
and which does not directly contribute to the flow of goods and services in the economy
Balance of Trade : Balance of trade is the net difference of import and export of all visible items
between the residents of a country and world
if we include both visible(goods) and invisible items(services then it is called
Balance of Payments

Autonomous Transactions : are determined by the motive of profit maximisation and not to
maintain equilibrium in balance of payments.
Accommodating Items : that are for correcting balance of payments disequilibrium

Unilateral transfers : Transfer of goods or services from one country to another without receiving anything
in back, e.g., foreign aid
Types of Foreign Exchange Regimes : (i) Fixed Exchange Rate

(ii) Flexible Exchange Rate System

Macro Economics

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Richa 10 minutes Revision

By Ravi Mohanani/Sindhi Colony, Khandwa MP 450001

Macroeconomics- Study of whole economy

Richa Coaching Classes/89639 84848

John Maynard Keynes is known as father of

Flow: Flow is a quantity that can be measured over

Richa Coaching Classes/89639 84848

Injections of Income : It is the amount of money

Counting the value of the same product more than

income from self resources like –rent of

Money may be defined as anything which is

Richa Coaching Classes/89639 84848

In which goods are exchanged for goods It has

It Supervises, controls and regulates the activities of

Fiat Money/ Legal Tender Fiduciary Money/

Propensity to Save : It is the ratio of saving to

Saving Function : It denotes the relation

Induced Investment: It depends upon income and profit in

Ex-Post Saving : It is realised saving. It is equal to Ex-Ante saving + Unplanned saving

Ex-Post Investment : It is realised investment. It is equal to Ex-Ante investment + unplanned investment

Objectives of Government Budget : (i) Encouragement to economic development,

(i) Balanced Budget : Total Expenditure = Total Revenue

if we include both visible(goods) and invisible items(services then it is called

Richa Coaching Classes/89639 84848

Accommodating Items : that are for correcting balance of payments disequilibrium

Types of Foreign Exchange Regimes : (i) Fixed Exchange Rate

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